By David Stevenson on 24th February 2015
The battle between alternative finance funds looking to access institutional capital has moved up a gear today as Shepherd Capital, an experienced player in the P2P lending space (a Top 5 investor in LCA Lending Club, Funding Circle, Market Invoice, Iwoca and Finexkap) announces the launch of an ambitious new joint venture with Eiffel Investment Group a french fund manager with Eur 500 million of AUM.
Eiffel eCapital launched its business at the AltFi Europe Summit in London with ambitions to become a major global manager with assets under management of more than 250 million Euros within the next few years.
According to Shepherd Capital partner Etienne Boillot, teaming up with Paris based Eiffel allows the Luxembourg-based family office to accelerate its development in this asset class.
As most AltFi readers will know, Shepherd has been very active in the P2P online lending market since 2010. Boillot argues that Eiffel brings institutional level infrastructure (IT, legal, regulatory, operations) as well a recognized and respected brand – crucially it will also allow the jointly managed strategies to leverage significant institutional level relationships using Eiffel’s existing client base. The partnership with Eiffel will help to “provide intelligent solutions for institutional investors and family offices seeking to participate in the asset class—solutions that are country or region specific (US/UK/Europe) and that take into account each market’s specificities (size/liquidity/rates/risk/tax/regulatory constraints)" says Boillot.
According to Fabrice Dumonteil, Eiffel Investment Group CEO, “we are thrilled to be joining forces with Shepherd because we believe there is a significant opportunity to build a world class asset manager in the space and because we bring complementary skills and assets to the table”.
Crucially, Eiffel eCapital will navigate across a number of different niches within the alternative finance spectrum, including consumer P2P loans through to more specialist small and medium sized business funding.
According to Boillot, who will be the CEO of Eiffel eCapital, “we follow a “top down” and “bottom up” process developed through managing our family office and investing in a broad range of liquid strategies. On one hand we look at “top down” factors such as market rate structure, origination volumes, historical performance, default rates, position in the economic cycle, etc.; and on the other hand we thoroughly diligence each platform we work with to understand their team, credit process, origination strategies, back up servicing arrangement, long term market position and competitive advantage. “
At launch Eiffel eCapital will offer geographically differentiated strategies:
- A US strategy with expected un-levered returns net of all fees and defaults in the range of 7%-9%;
- A UK sterling based option with un-levered returns net of all fees and defaults in the range of 6% to 8%;
- Last but not least a Euro strategy with un-levered returns net of all fees and defaults likely to be in the range of 5% to 7%.
In terms of selling into the institutional investment space the managers believe the strategies can complement a short term bond allocation given their “attractive yield, short duration, high cash flow and lack of correlation to major markets. “ Average duration across the portfolios will be between 1.5 years and 2 years according to the managers.
Putting money to work on platforms?
According to Boillot the initial focus of the strategies will be on the platforms providing greater origination volumes – “We are going to make a limited number of significant commitments and want to be sure we are working with best-in-class partners. Not only do the larger platforms have liquidity but more importantly they offer the comfort of a significant track record and data set; they also tend to be well capitalized and have institutional level back up servicing arrangements, reporting, and compliance procedures”.
But Boillot is also keen to emphasize that the fund will be looking at the next tier of platforms in the future – he says the managers intend to “partner in an appropriately sized way with those that show the most potential. We’re not averse to working with smaller or newer platforms - we are particularly interested in smaller platforms that have decided to focus on a particular niche or market vertical (for instance, Iwoca for short term credit facilities and Market Invoice for invoice discounting in the UK, alongside Finexkap for invoice discounting in France).”
Eiffel’s own background within more traditional institutional fund management should provide a huge boost to Shepherd’s ambitions to be one of the major players in the fast growing alternative finance space. The French based firm is independently owned by the management alongside former Louis Dreyfus group Chairman & CEO Jacques Veyrat (the company started during 2008 as an asset management division of the Louis Dreyfus group and spun-off mid-2011).
Eiffel specialises in European credit and equity, managing EUR 500 million (ca. USD 600 million) of proprietary and third party assets in a range of absolute return strategies in European credit and equity. Proprietary capital represents over 20% of AUM. In particular Eiffel has long been active in providing credit to larger European corporates, so Eiffel eCapital's emphasis on platforms that help small businesses comes as a natural extension of the Eiffel group know-how.
Given Eaglewood’s recent success in placing another £250m into its publicly quoted P2PGI vehicle, and talk of at least another three different funds all looking to raise money on the public markets via a fund, Eiffel eCapital’s launch is a big move by experienced players. It offers investors an interesting alternative to a daily traded product—which perhaps more closely mirrors the nature of the underlying investments : loans.
Eiffel eCapital’s strategies are clearly aimed at institutional investors – with minimum investment tickets of £1million – unlike some of its listed rivals who can accept retail funds, but the pool of untapped money amongst pension funds and private banks could be huge. With interest rates across the developed world at rock bottom levels and yields on offer from some mainstream fixed income bonds negative (the UK government recently sold one inflation linked bond with a negative rate while Nestle has also sold a corporate bond at similarly negative rates), the timing for an innovative fund that invests across platforms, durations and geographies could hit the spot.
Our guess is that the challenges facing the new venture will be two-fold – first to have enough platforms for Eiffel eCapital to deploy all its capital and second making sure the platforms have enough loans origination to keep track of all the fund based demand. Crucially this new manager also poses a major question moving forward for the alternative finance space – are funds rather than direct investments on platforms the future for the industry?